In this video, I explain why there is no tax benefit for holding your Restricted Stock Units more than one year. Many people think there is but that’s likely because they’re mixing RSUs up with the tax treatment other forms of equity like Incentive Stock Options.
Why you don’t save taxes by holding Restricted Stock Units Transcript:
Hi, I’m Tom Lo with Vested Financial Planning. Many of my clients will say, “Hey, I want to hold onto my RSUs for the tax benefits.” So I explain to them that there really are no tax benefits for holding on to your RSUs. Because RSUs are taxed as ordinary income just like your salary, the day you vest, you don’t really get a tax benefit.
Clients will say, “Well, if I hold it more than a year then I get the lower long-term capital gains tax rate,” and that’s true, but it’s only true for the gain from the day you vest till the day you sell. If you went out and bought company stock in the stock market and you held it more than a year, that gain would also qualify for the long-term cap gains tax rate.
Let me give you a quick example. Let’s say you had $70,000 of RSUs. You held them more than a year. You then sold them for $80,000 so you have a gain of $10,000. For that gain of $10,000, you qualify for the long-term capital gains tax rate. Alternatively, if you took your cash bonus and you went out and you bought $70,000 worth of stock. You held it more than a year. You sold it for $80,000. That would also qualify for the long-term capital gains tax rate. So in both cases, you are in exactly the same place.
What happens with a lot of clients is they mix it up with other forms of equity like Incentive Stock Options where there is a tax benefit for holding on more than a year but with RSUs, you don’t get that tax benefit.
After 20 years working for companies including eBay, Yahoo!, Intuit, and startups, I made a career change into the financial world as a fee-only financial planner 9 years ago. I earned my CFP®, spent a few years at a boutique fee-only firm in San Jose, worked 2 1/2 years at a leading wealth management firm in San Francisco, and then left to build the firm I wish had existed when I was working as a tech professional.
My mission is to help other Silicon Valley professionals make the most of their employee equity to help them reach their financial goals.